Duty free incentives for steel imports canceled

(L) Prime Minister Hailemariam Desalegn and Ahmed Abetw, Minister of MoI
(L) Prime Minister Hailemariam Desalegn and Ahmed Abetw, Minister of MoI

The National Export Coordination Committee (NECC) chaired by Prime Minister Hailemariam Desalegn found that steel traders have organized to pressure local steel manufacturers and as a result the investment commission has lifted duty free incentives for steel imports.

The local steel industry points to headwinds outside their control affecting production, making it difficult for them to compete in the local market.

In its 123rd NECC meeting held two months ago which included government officials and institutions and  representatives from the metal industry four ideas to solve the challenges Ethiopian steel faces, were announced.

After the committee published their findings the Ministry of Industry (MoI) issued a letter outlining a strategy for government bodies to follow in the future.

A MoI letter issued on October 31 and signed by Ahmed Abetw, Minister of MoI, indicated that the committee supports expanding import substitution to boost hard currency earnings, which goes along with previous policy.

In its first of four decisions the letter stated that the local metal industry needs to be protected from imports immediately.

The committee believes steel traders are pressuring local manufacturers in an organized manner. “This problem has to be solved,” the MoI letter, which reflects the NECC decision said.

The letter sent to the Ministry of Finance and Economic Cooperation, Ministry of Trade, EIC, Ethiopian Revenue and Customs Authority (ERCA), and the National Bank of Ethiopia also included parts of the commercial code and directives that negatively impact the local industry which it argues should be checked and amended.

It mentioned the value addition incentive as an example of a rule that should be changed to encourage locally produced items to prosper in the market.

In the letter the committee stated that duty free incentives are being given for items that are not produced locally.

To alleviate this the NECC ordered the Ethiopian Investment Commission (EIC) to improve its duty free incentives allowed for investors.

The NECC says the Ethiopian Investment Commission should suspend the duty free incentive on wire rod and reinforcement bars so local steel manufacturers have ample capacity to fill the local market. MoI in its letter stated that the ministry and sub institutions and the sector association will create a suitable market linkage between manufacturers and customers.

“ERCA is expected to submit the detailed information of duty free products and input imports in the first week of every month as of November with the goal of creating a similar market linkage on other locally manufactured products with customers,” the letter stated.

Finally the letter stressed that metal and engineering manufacturers must receive priority and special treatment to access hard currency for importing raw materials, as opposed to importers.

Alemu Sime (PhD), State Minister of MoI, told Capital that the government passed this decision because ample steel production capacity builds the country. He said that that the local construction sector must access adequate steel products locally. “Tariffs should be put in place for steel imports,” he added.

Capital learned that EIC has stopped giving duty free incentives since the ministry issued the letter.

Sources at government offices told Capital that the government believes that the duty free incentives have been abused as importers will buy more steel than they need for a project and then sell the rest illegally. This new policy should alleviate the problem.

Manufacturers that Capital interviewed said local manufacturers have been affected by imported items covered by duty free products, meanwhile the local industry can feed the demand.

On different occasions manufacturers and their associations have filed their claims to the PM Office, MoI and Ethiopian Metal Industries Development Institute (EMIDI) about the unfair market competition and challenges that they face.

The government has evaluated the sector challenges for the past three years, according to sources.

“The latest decision is the result of the government assessment,” experts in the sector said.

“There were challenges observed in the sector, but the new government decision will avert it,” manufacturers said. Solomon Mulugeta, General Manager of EABMEI, told Capital that it is a big decision taken by the government.

He said that it has addressed major challenges faced by the sector and it has also tackled the influences imposed by some of traders or importers.

“It is a big recognition that the committee disclosed that there are some illegal actors that have hurt local steel manufacturers,” he added. He said that one of the four points that has to be solved is the barriers that affect the activities of the local manufacturers.

The association and manufacturers have claimed that the government has to revise the 35 value addition preferential.

According to the government procurement law, a 15 percent price preferential is allocated for local steel industries if they add a 35 percent value locally. The third point of MoI letter indicated that the percentage would be revised given the local situation.

Solomon expressed his hope that the government would revise the 35 percent value addition before the end of the budget year.

The local steel industry is aggressively expanding with local and foreign investors and some huge industries are in the pipeline to commence their production.

Annual reinforcement bars have reached 1.5 million tons, which is ample to fill the local demand, according to experts.

Different studies indicated that the country’s current wire rod, which is input for nail production and additional material for concrete for construction, demand is about 60,000 metric tons per annum.

Steely RMI, which has a capacity of producing 120,000 metric tons per annum, commenced its wire rod production in March 2014 to fill the market demand that was dominated by imports. Experts commented that the current wire rod production that includes C & E Brothers and Eastern will lead the government to actually ban imports. In fact the surplus production would eventually lead these companies to assess the neighboring countries’ market for export.

According to the sector actors and the letter that MoI identified steel importers and international manufacturers, who have dominated huge government bids in previous years, have been using different techniques to pressure local manufacturers to not be able to produce wire rod and reinforcement bars with the goal of controlling the sector market without local competition.

Since Steely RMI decided to commence wire rod production with a huge capacity in 2014 the government has introduced incentives for local manufacturers to expand their wire rod production to reduce imports.

Based on that the Ministry of Finance and Economic Cooperation issued a circular to impose a 20 percent tariff and 10 percent surtax on wire rod imports. Before that, the tariff was only 5 percent

Since then importers have frequently asked the government to lift the levy and other preferences given to local manufacturers.

“If international suppliers and their agents, who already have huge capital, have real concern in the steel market they have to invest locally,” experts told Capital.